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Equivolume charting was developed by Richard Arms, creator of the Arms Index (TRIN). In creating Equivolume, Arms managed to bring volume closer to price action. Instead of looking at separate volume bars, Equivolume incorporates volume right into price action. Each period’s price plot is shown as a rectangle. The high forms the top of the rectangle and the low forms the bottom. Rectangles are black when the close is above the prior period’s close and red when the close is below. Volume is reflected in the rectangle’s width. Big volume days will appear as wide rectangles. Low volume days will appear as narrow rectangles. Squares sometimes form, but the vast majority of shapes are rectangles.
As you can see from the chart above, volume merges right into price action. You don’t even need to analyze volume as a separate indicator. In addition, normal technical analysis can be applied to this price chart. Moving averages, trendlines and other indicators can be applied. With volume incorporated into price action, it is easier to validate important moves.
Best Buy (BBY) shows a few good moves with Equivolume. The stock broke support with a wide red rectangle in mid June and this decline continued into early July. A fairly wide reversal rectangle marked the July low and preceded the trendline break. More recently, Best Buy broke above its late August high with a wide volume rectangle in early September.
Gold stocks led the market higher in early September with Equivolume confirming the breakout in Newmont Mining (NEM). NEM broke above its upper Bollinger Band with the widest black rectangle in over three months. The stock also broke above its July-August highs.
SharpCharts users can select Equivolume as a chart “type” under “chart attributes”. If volume is important to your analysis, then I suggest giving Equivolume charts a try.
